Commercial Division Blog

Contract Negotiated in New York Does Not Support Assertion of Jurisdiction When Claims Are Not for Breach of that Contract

On May 11, 2015, Justice Kornreich of the New York County Commercial Division issued a decision in Stevenson v. AMP Solar Group, Inc., 2015 NY Slip Op. 30771(U), dismissing foreign defendants for lack of personal jurisdiction.

In Stevenson, the plaintiff brought claims against a New York resident and several persons and entities located in Canada relating to a consulting agreement. The defendants moved to dismiss. The court granted the Canadian defendants’ motion to dismiss on personal jurisdiction grounds, explaining:

It is undisputed that the defendants asserting jurisdictional arguments are located in Canada and do not continually and systemically do business in New York. General jurisdiction, therefore, does not exist over them under CPLR 301.

[The plaintiff], thus, must establish specific jurisdiction. New York’s long-arm statute, CPLR 302, provides for specific jurisdiction over out-of-state defendants when plaintiff’s cause of action arises from one of four circumstances. [The plaintiff] argues that two of these circumstances arc present First, [the plaintiff] asserts that jurisdiction exists under CPLR 302(a)(1), which provides jurisdiction over a non-domiciliary that transacts any business within the state or contracts anywhere to supply goods or services in the state. CPLR 302(a)(l) is a single act statute and proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted.

[The plaintiff] avers that his allegations that the Agreement was negotiated in New York and that he attended meetings in New York are sufficient to confer jurisdiction under CPLR 302(a)(1). [The plaintiff] is wrong. If [the plaintiff] was asserting a claim arising under the Agreement, jurisdiction may well exist (although such a claim would be subject to mandatory arbitration). [The plaintiff’s] claims, however, have nothing to do with the Agreement itself or its effectuation. Rather, [the plaintiff] is claiming that his alleged co-shareholders, through the actions of Ezekiel and Rogers, breached their fiduciary duties to Yallingup by failing to transfer certain profits from AMP Inc. to Yallingup.

Such a claim has nothing to do with New York. The facts underlying this claim are unrelated to the parties’ activities that allegedly occurred in New York. The profits, if any, would have come from business that took place exclusively within Canada and the allegations concern the proper distribution of profits between Canadian companies. The events that took place in New York only relate to (1) the circumstances of the agreement governing [the plaintiff’s] consulting services; and (2) the work [the plaintiff] allegedly performed to earn his Yallingup equity. Claims arising from either of these sets of events might give rise to jurisdiction under CPLR 302(a)(1) because there is a nexus between the events in New York and the alleged wrongdoing. Here, however, the wrongdoing, if any occurred, merely implicates violations of Canadian fiduciary duty law between parties outside of New York.

Yallingup is a Canadian company, and its internal affairs are governed by Canadian, not New York, law. New York, moreover, has no nexus to the subject disputes nor an interest in the outcome. [The plaintiff], after all, is not even a New York resident. Though the complaint contains factual allegations concerning events in New York, none of the events giving rise to the claims actually pleaded look place in New York. Jurisdiction under CPLR 302(a)(l), therefore, does not exist.

Nor is there jurisdiction under CPLR 302(a)(2), which applies when an out-of-state defendant commits a tortious act in New York. Again, the actual alleged wrongdoing – failure to transfer profits from AMP, Inc. to Yallingup — took place in Canada. Though Stevenson baldy claims wrongdoing occurred in New York, he does not identify any such wrongdoing. He, again, relies on the contract negotiations and his consulting work in New York, but neither of those form the basis of his derivative claims. Personal jurisdiction, consequently, does not exist.

(Internal quotations and citations omitted) (emphasis added). This decision shows the pitfalls of not having a clear theory of personal jurisdiction over foreign defendants before bringing an action.